Republicans’ No-Tax Stand Unsupported by History or Facts: View

Aug 9, 2011 8:00 PM EDT

You would think that abysmal growth and jobs data, the first-ever downgrade of U.S. debt and heart-stopping gyrations in the financial markets would impel political leaders to at least take a second look at some of their assumptions about restoring confidence in the U.S. economy.

Sadly, you would be mistaken.

President Barack Obama called again this week for a deficit-reduction plan that includes both new revenue and spending cuts, a solution that he said would require “common sense and compromise.” Alas, we have seen little of either quality from Speaker John Boehner and the House majority leader, Eric Cantor. The Republican leaders reiterated their determination to oppose any solution to the U.S. fiscal mess that involves revenue increases.

Whatever one thinks of the validity of Standard & Poor’s decision to downgrade U.S. debt, it contained an admonition that we should take seriously: Spending cuts alone won’t be sufficient to place the debt, and by extension, the economy, on a sustainable path. In a memo to his Republican colleagues, Cantor warned that S&P’s analysis put the party under “pressure to compromise on tax increases” on the ground that there is “no other way forward.” His response: “I respectfully disagree.”

As always, the Republican leaders justified their intransigence by invoking the demons of job-killing taxes that would suppress the dynamism of overtaxed Americans, hampering growth.

Low Taxes

This is partisan nonsense. First, consider the claim that Americans are being taxed to death. In fact, in terms of the economy as a whole, federal taxes are at their lowest level since 1950. The Congressional Budget Office estimated that federal taxes would account for 14.8 percent of gross domestic product in 2011.

That isn’t a one-year anomaly: Revenue was 14.9 percent of GDP in both 2009 and 2010. Compare that with a postwar average of about 18.5 percent of GDP, and an average of 18.2 percent during the administration of President Ronald Reagan.

Which brings us to a second dubious claim: Raising taxes in a downturn hinders growth. In 1982, amid a punishing 16-month recession, Reagan approved the largest peacetime tax increase in U.S. history. A booming economy followed in 1983 and 1984, enabling him to sail to re-election.

‘Job Killer’

In 1993, President Bill Clinton forced a tax increase through Congress that Representative Dick Armey, then chairman of the House Republican Caucus, condemned as a “job killer” that would push the economy into recession. That increase was succeeded by the creation of 23 million new jobs, and the Clinton administration left a budget surplus of about $236 billion. By contrast, President George W. Bush pushed through two rounds of tax cuts and created just 3 million jobs. He also turned the surplus he inherited into a $1.2 trillion deficit.

Obviously, today’s economic crisis is vastly more severe than anything Reagan or Clinton faced, thus the timing and scope of tax increases must be carefully calibrated. Over the long term, however, the Republican mantra of “no higher taxes, ever” is as senseless as are claims by some Democrats that we can solve our fiscal gaps simply by soaking the rich. Both spending cuts and revenue increases are required.

One of the oddest aspects of this debate is that the Republican position may not even be good politics -- at least outside safe Republican districts. Public-opinion polls show an increasing acceptance of the need to raise taxes to put the nation’s fiscal house in order. (A large majority of voters would like to see the wealthiest 1 percent raise their hands first.)

The American people are showing that they grasp a fundamental notion that still eludes some of their political leaders. As Justice Oliver Wendell Holmes said, “Taxes are what we pay for a civilized society.” That is well worth the price.

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.